Accounting Standards 1-29 - Seth & Associates

29. To illustrate:
a. the principles for recognising and measuring losses from inventory write-downs, restructurings,
or impairments in an interim period are the same as those that an enterprise would follow if it
prepared only annual financial statements. However, if such items are recognised and measured
in one interim period and the estimate changes in a subsequent interim period of that financial
year, the original estimate is changed in the subsequent interim period either by accrual of an
additional amount of loss or by reversal of the previously recognised amount;
b. a cost that does not meet the definition of an asset at the end of an interim period is not deferred
on the balance sheet date either to await future information as to whether it has met the definition
of an asset or to smooth earnings over interim periods within a financial year; and
c. income tax expense is recognised in each interim period based on the best estimate of the
weighted average annual effective income tax rate expected for the full financial year. Amounts
accrued for income tax expense in one interim period may have to be adjusted in a subsequent
interim period of that financial year if the estimate of the annual effective income tax rate
changes.
30. Under the Framework for the Preparation and Presentation of Financial Statements, recognition is the
“process of incorporating in the balance sheet or statement of profit and loss an item that meets the
definition of an element and satisfies the criteria for recognition”. The definitions of assets, liabilities,
income, and expenses are fundamental to recognition, both at annual and interim financial reporting
dates.
31. For assets, the same tests of future economic benefits apply at interim dates as they apply at the end of
an enterprise’s financial year. Costs that, by their nature, would not qualify as assets at financial year end
would not qualify at interim dates as well. Similarly, a liability at an interim reporting date must represent
an existing obligation at that date, just as it must at an annual reporting date.
32. Income is recognised in the statement of profit and loss when an increase in future economic benefits
related to an increase in an asset or a decrease of a liability has arisen that can be measured reliably.
Expenses are recognised in the statement of profit and loss when a decrease in future economic benefits
related to a decrease in an asset or an increase of a liability has arisen that can be measured reliably.
The recognition of items in the balance sheet which do not meet the definition of assets or liabilities is not
allowed.
33. In measuring assets, liabilities, income, expenses, and cash flows reported in its financial statements, an
enterprise that reports only annually is able to take into account information that becomes available
throughout the financial year. Its measurements are, in effect, on a year-to-date basis.
34. An enterprise that reports half-yearly, uses information available by mid-year or shortly thereafter in
making the measurements in its financial statements for the first six-month period and information
available by year-end or shortly thereafter for the twelve-month period. The twelve-month measurements
will reflect any changes in estimates of amounts reported for the first six-month period. The amounts
reported in the interim financial report for the first six-month period are not retrospectively adjusted.
Paragraphs 16(d) and 25 require, however, that the nature and amount of any significant changes in
estimates be disclosed.
35. An enterprise that reports more frequently than half-yearly, measures income and expenses on a year-todate
basis for each interim period using information available when each set of financial statements is
being prepared. Amounts of income and expenses reported in the current interim period will reflect any
changes in estimates of amounts reported in prior interim periods of the financial year. The amounts
reported in prior interim periods are not retrospectively adjusted. Paragraphs 16(d) and 25 require,